W. Highland Mortg. Fund I, LLC v. Tahoe Reg'l Planning Agency
| Decision Date | 10 January 2014 |
| Docket Number | No. 3:11–cv–00444–RCJ–WGC.,3:11–cv–00444–RCJ–WGC. |
| Citation | 993 F.Supp.2d 1288 |
| Parties | WESTERN HIGHLAND MORTGAGE FUND I, LLC, Plaintiff, v. TAHOE REGIONAL PLANNING AGENCY et al., Defendants. |
| Court | U.S. District Court — District of Nevada |
OPINION TEXT STARTS HERE
Christina H. Wang, Fidelity National Law Group, Henderson, NV, Peter E. Dunkley, Meier & Fine, LLC, Las Vegas, NV, John T. Steffen, Richard L. Doxey, Hutchison & Steffen, Las Vegas, NV, for Plaintiff.
Jessica Lilly Satre, Nicole U. Rinke, Scott J. Lichtig, Tahoe Regional Planning Agency, Stateline, NV, John L. Marshall, Tahoe Regional Planning Agency, Reno, NV, Brittany Wood, Aaron R. Maurice, Kolesar & Leatham, Las Vegas, NV, Thomas J. Hall, Reno, NV, for Defendants.
Chad R. Smittkamp, Genoa, NV, pro se.
This declaratory judgment action arises out of uncertainty in the priority of liens against real property in Nevada after a complex series of transactions, as well as Defendant Tahoe Regional Planning Agency's (“TRPA”) refusal to recognize the existence of one of the real estate parcels at issue for the purposes of development under the Tahoe Regional Planning Compact (the “Compact”) after the subject parcel was created by a state court judge in Nevada pursuant to a settlement agreement in a previous action. Pending before the Court is Defendant Jean Merkelbach's Motion to Dismiss (ECF No. 125). For the reasons given herein, the Court grants the motion in part, with leave to amend.
I. FACTS AND PROCEDURAL HISTORYA. Creation of the Parcels
On September 19, 2000, a judge of the Ninth Judicial District Court in Nevada issued a stipulation and order (the “State Court Order”) in a case called Harvey v. Smittkamp, No. 99–CV00305–DC, splitting a parcel of real estate (the “Former Parcel”) into two parcels, Parcel 008 and Parcel 009 (collectively, the “New Parcels”). (Compl. ¶¶ 7–9, June 22, 2011, ECF No. 1–1). The State Court Order was recorded with the Douglas County Recorder's Office, with a survey of the New Parcels attached thereto, and the Douglas County Assessor thereafter identified Parcels 008 and 009 as APN: 1418–03–301–008 and –009, respectively, and assessed taxes against them. ( See id. ¶¶ 10–12).
B. Encumbrances upon the Parcels
The New Parcels (previously the Former Parcel) were owned by the Rockwell 1997 Trust (the “Trust”), with trustees Chad Smittkamp and Jean Merkelbach, who had been parties to the Harvey case. . During the real estate boom, the New Parcels experienced what can only be described as an orgy of encumbrances.
On November 14, 2003, separate deeds of trust were recorded against Parcel 008 and Parcel 009, both securing a single loan for $252,000 from Novasel & Schwarte Investments, Inc., d.b.a. Western Highland Mortgage Co. (“WHMC”). ( Id. ¶¶ 13–15). A Release Agreement recorded as an attachment to the deed of trust against Parcel 009 provided that WHMC would release the deed of trust against Parcel 009 once the loan from WHMC was secured by a first-position deed of trust against Parcel 008. ( See id. ¶ 17). At the time WHMC's deeds of trust were recorded, Parcel 009 was already encumbered by two deeds of trust, putting the deed of trust against Parcel 009 in favor of WHMC in third position. ( Id. ¶ 16). The first-position deed of trust against Parcel 009 secured a $2,000,000 debt to Washington Mutual Bank (“WaMu”), and the second-position deed of trust against Parcel 009 secured a $200,000 debt to Anne Marie Rehberger as trustee of the Rehberger Family Trust. ( Id.). The WaMu and Rehberger debts were subsequently satisfied, and the respective deeds of trust reconveyed, on unspecified dates, putting the WHMC deeds of trust in first position. ( See id.).
On March 9, 2004, the Trust gave WaMu a deed of trust against Parcel 009 to secure a $2,500,000 loan. ( See ¶ 18). On March 24, 2004, WHMC caused to be recorded a “Partial Reconveyance” of its deed of trust against Parcel 009, the intent of which was apparently to reconvey the deed of trust against Parcel 009 pursuant to the Release Agreement, conditioned upon the valid existence of Parcel 008 under the State Court Order and the vitality of its deed of trust against Parcel 008. ( See id. ¶ 20).1
On April 20, 2004, the Trust gave the Rehberger Family Trust a deed of trust against Parcel 009 to secure a $450,000 loan. ( Id. ¶ 19). On December 8, 2004, the Trust gave Acres Corp. a deed of trust against Parcel 009 to secure a $120,000 loan. ( Id.). The Rehberger and Acres debts were subsequently satisfied, and the respective deeds of trust reconveyed, on unspecified dates. ( See id.).
On January 27 and April 20, 2005, the Trust gave CitiMortgage deeds of trust against Parcel 009 to secure two loans of unspecified amounts. ( See id. ¶¶ 21–22). The Trust later refinanced the first CitiMortgage mortgage with CitiMortgage on December 6, 2005, recording a subordination agreement indicating that the December 2006 mortgage with CitiMortgage was prior to the April 2005 mortgage with CitiMortgage in case there were any doubt about subrogation via the refinance. ( See id. ¶ 23).
On October 30, 2006, the Trust refinanced the 2003 loan from WHMC for $500,000 with Western Highland Mortgage Fund I (“WHMF–I”), with some additional cash-back, giving WHMF–I a deed of trust against unspecified real estate. ( See id. ¶¶ 25–26). WHMF–I expected when it gave the Trust the loan, and believes today, that it is equitably subrogated to WHMC's first-position lien against the New Parcels. ( See id. ¶ 27).
Further complicating matters, although the Douglas County Assessor recognizes Parcel 008 as a legal parcel, TRPA refuses to. ( Id. ¶ 29). This fact may make title to Parcel 008 unmarketable, diminishing its value, as TRPA presumably has what amount to zoning powers over land within its jurisdiction for the purposes of a marketability analysis.
WHMF–I sued TRPA, CitiMortgage, Rockwell Lot, LLC, Smittkamp and Merkelbach, individually and as trustees of the Trust, and Merkelbach, as trustee of the SES Trust, in state court, seeking a declaration that Parcel 008 is a legal parcel, a declaration as to the priority of liens against the New Parcels or the Former Parcel, and judicial foreclosure of any parcels against which it may have such remedybased upon the answers to the preliminary questions. Defendants removed. Merkelbach, both individually and in her capacities as trustee for the Trust and the SES Trust, filed a Crossclaim against TRPA for a declaration that TRPA must recognize Parcel 008, that she may construct a single-family home on Parcel 008, and for damages. CitiMortgage included a Counterclaim and Crossclaim in its Answer for declaratory relief, quiet title, and equitable subrogation. CitiMortgage has since filed an Amended Crossclaim.
The case was originally assigned to Judge Larry R. Hicks but was later transferred to Judge Edward C. Reed. Judge Reed denied CitiMortgage's motion to dismiss and granted TRPA's motion for judgment on the pleadings as against Merkelbach's Crossclaim, but not as against WHMF–I's claim. ( See Order, Aug. 7, 2012, ECF No. 63, 2012 WL 3262832). Judge Reed noted that the Compact is an interstate compact between Nevada and California that had been approved by Congress, that TRPA had certain zoning powers thereunder, and that property owners within TRPA's jurisdiction must obtain TRPA's permission to subdivide their properties. ( See id. 8–9). Merkelbach had applied to TRPA to subdivide the Former Parcel into Parcel 008 and 009 after the State Court Order had already accomplished this in the eyes of Douglas County. ( See id. 9). TRPA denied the request under TRPA regulations. ( Id.). The TRPA Governing Board upheld the ruling upon Merkelbach's appeal after a hearing at which she was represented by counsel. ( Id.). Merkelbach did not seek judicial review within sixty (60) days, as permitted under Article XI of the Compact. ( Id. 9–10). Judge Reed ruled that therefore Merkelbach, but not WHMF–I, was barred from bringing a claim against TRPA over its refusal to recognize Parcel 008 and dismissed the Crossclaim, but not WHMF–I's claim.
The case was reassigned to this Court. Citimortgage filed a motion for summary judgment, asking the Court to rule that WHMF–I's lien against Parcel 009, if any, was not equitably subrogated to first position ahead of CitiMortgage's own lien against Parcel 009. The Court denied the motion, noting that it was likely that Parcel 008 was a legal parcel for the purposes of state law, if not under TRPA, such that there might be no controversy over Parcel 009 under the relevant deeds. The Court did not at that time directly rule as to whether Parcel 008 was a legal parcel, because no party had asked the Court to so rule. The Court contemporaneously granted WHMF–I's motion to amend the complaint to add a claim against Merklebach and Smittkamp for fraud based upon alleged misrepresentations they made to WHMF–I concerning the disputed legal status of Parcel 008 when negotiating the loan to them from Plaintiff, as well as a claim against Merklebach for breach of contract based upon her refusal to defend and indemnify WHMF–I in the present action. Plaintiff Fidelity National Title Insurance Co. (“Fidelity”) 2 has filed the First Amended Complaint (“FAC”), including those claims, and Merkelbach has asked the Court to dismiss them.
II. LEGAL STANDARDSA. Rules 8(a) and 12(b)(6)
Federal Rule of Civil Procedure 8(a)(2) requires only “a short and plain statement of the claim showing that the pleader is entitled to relief” in order to “give the defendant fair notice of what the ... claim is and the grounds upon which it rests.” Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). Federal Rule of Civil Procedure 12(b)(6) mandates that a court dismiss a cause of action that fails to state a claim upon which relief can be granted. A motion to dismiss under Rule 12(b)(6) tests the complaint's sufficiency. See N. Star Int'l v. Ariz....
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